This copy is for your personal, non-commercial use only. To order presentation-ready copies for distribution to your colleagues, clients or customers, click the "Reprints" link at the top of any article.

U.S. Health Gains Slow as Costs Rise

Improvement in the U.S. mortality rate lags those of its peers.

The $2.7 trillion U.S. health-care system lags behind other nations in improving its citizens’ health even as spending has doubled, increasing faster than any other industry over the past decade, researchers said.

The rise in costs have been driven primarily by the price of services, drugs and devices rather than higher demand from an aging population, according to a report today on U.S. spending trends in the Journal of the American Medical Association. The analysis also found that two-thirds of spending is for people younger than 65 with chronic illness, though most of the focus on cutting costs has been centered on the elderly.

Health-care expenditures have doubled since 1980, accounting for 18 percent of U.S. gross domestic product and leading to financial success for drugmakers, device companies, hospitals, insurers and other providers, the authors said. Yet patients haven’t seen the same gains.

“Everyone whether a patient or a policy maker or a health-care executive needs to ask the question, are we getting the best value for the money?” said Hamilton Moses, an author of the study and founder of consulting firm Alerion Advisers LLC in North Garden, Virginia. “Are we getting the returns and results commensurate for spending 18 percent of GDP? No, we are not. We are falling short in mortality, we are trailing in the rate of life extension and that change began in the 1980s.”

In the U.S. life expectancy is 79 years compared with 81 years in the U.K. and Canada and 82 years in Spain and Italy, according to the World Bank.

Improvements in the U.S. mortality rate started to lag behind those of its peer countries in the 1980s for men and 1990s for women. The gap is likely due to a number of reasons, including rising obesity, lack of insurance coverage, poorly coordinated care and preference for newer technology that can carry higher risks, according to the report.

The report dispelled a number of myths about spending in the U.S. health-care system, including the belief that expenditures are growing out of control and that the elderly are the main reason for that rise, said Moses, a former chief operating officer of Johns Hopkins Hospital in Baltimore.

“There were a number of misconceptions about the cost outcomes and tensions,” he said. “The discussion in this country needs to be informed by the best available data.”

The researchers found that spending has slowed as a percentage of gross domestic product during the past decade and that percentage would have leveled off had it not been for an slowdown in total GDP from the recession, said Moses.

Government Costs

The analysis was conducted by researchers from Johns Hopkins University, The Boston Consulting Group, Alerion, and the University of Rochester and drew from publicly available data from the U.S. Department of Labor and U.S. Department of Health and Human Services.

Over the 31 years of data analyzed, researchers found the government is picking up a bigger share of the cost with 42 percent of spending by state and federal health programs in 2011 compared with 31 percent in 1980. While many people are paying more than ever for health care because of higher costs, the percent of individual expenditure has declined with personal out-of-pocket spending on insurance premiums and co-payments dropping to 11 percent from 23 percent in 1980.

“As a percentage, out-of-pocket spending by individuals has fallen consistently since 1980,” Moses said. “That isn’t to say individual spending hasn’t increased, it has because of inflation.”

The price of professional services, drugs, devices and administrative costs accounted for 91 percent of cost increases since 2000, the report found. Illnesses costing the country the most are heart disease followed by trauma injuries, cancer and mental disorders.

“The United States pays a penalty for its extreme fragmentation, financial incentives that favor procedures over comprehensive longitudinal care, and absence of organizational strategy at the individual system level,” wrote the authors.

Treasury & Risk

Treasury & Risk is an online publication and robust website designed to meet the information needs of finance, treasury, and risk management professionals. Our editorial content, delivered through multiple interactive channels, mixes strategic insights from thought leaders with in-depth analysis of best practices, original research projects, and case studies with corporate innovators.